Abolishing Ipos

Revisiting “Truth in Securities Revisited”: Abolishing IPOs and Harnessing Private Markets in the Public Good A.C. Pritchard* Abstract: This essay explores the line between private and public markets. I propose a two‐tier market system to replace initial public offerings. The lower tier would be a private market restricted to accredited investors; the top tier would be a public market with unlimited access. The transition between the two markets would be based on issuer choice and market capitalization, followed by a seasoning period of disclosure and trading in the public market before the issuer would be allowed to make a public offering. I argue that such system would promote not only efficient capital formation, but also investor protection. I. Introduction Milton Cohen, in his seminal article, Truth in Securities Revisited,1 was the first to highlight the awkwardness created by the enactment of Securities Act of 1933,2 which regulates public offerings of securities, prior to the enactment of the Securities Exchange Act of 1934, which governs the disclosure obligations of public companies. 3 Cohen pointed out that if the Securities Act had been adopted subsequent to, or simultaneously with, the Exchange Act, it would have been natural for public offering disclosure obligations to piggy‐back on the periodic disclosure obligations mandated for public companies.4 Franklin Delano Roosevelt’s political calculation, however, ensured that the bills would be separate and that the * Frances and George Skestos Professor of Law, University of Michigan Law School. This article was prepared for the Berle IV Conference held at University College, London. Thanks to participants at that conference for helpful suggestions and criticisms,